This article presents a Markov chain framework to characterize the behavior of the CBOE Volatility Index (VIX index). Two possible regimes are considered: high volatility and low volatility. The specification accounts for deviations from normality and the existence of persistence in the...

This article considers a multi-asset model based on Wishart processes that accounts for stochastic volatility and for stochastic correlations between the underlying assets, as well as between their volatilities. The model accounts for the existence of correlation term structure and correlation...

This article postulates a flexible specification for the implied volatility surface, which accounts for the existence of volatility skew and term structure. I show that it is possible to express the local volatility function in terms of the implied volatility. I then obtain an analytic formula...

European quanto derivatives are usually priced using the well known quanto adjustment corresponding to the forward of the quantoed asset under the assumptions of the Black-Scholes model. In this article, I present the quanto adjustment corresponding to the local volatility model that allows...

Multi-asset options exhibit sensitivity to the correlations between the underlying assets and these correlations are notoriously unstable. Moreover, some of these options such as the digital outperformance options, have a cross-gamma that changes sign depending on the relative evolution of the...

This paper analyzes to what extent the rejection of the investment dynamics implied by the Euler equation model with quadratic and symmetric adjustment costs can be attributed to the fact that the investment behavior of some firms in some periods is financially constrained by the availability of...

Empirical evidence shows that, in equity options markets, the slope of the skew is largely independent of the volatility level. Single-factor stochastic volatility models are not flexible enough to account for the stochastic behavior of the skew. On the other hand, multifactor stochastic...

I perform a regression analysis to test two of the most famous heuristic rules existing in the literature about the behavior of the implied volatility surface. These rules are the sticky delta rule and the sticky strike rule. I present a new specification to test the sticky strike rule, which...

Outperformance options allow investors to benefit from a view on the relative performance of two underlying assets without taking any directional exposure to the evolution of the market. These structures exhibit high sensitivity to the correlation between the underlying assets and are usually...

Quanto and composite derivatives exhibit sensitivity to the volatilities of the underlying asset and the exchange rate, as well as to the correlation between the assets returns and their volatilities. This article considers a multiasset model based on Wishart processes that accounts for...